We’re planning changes to our penalty payments process

Keiran Coleman

Kieran Coleman

Publication date

Industry sector

Supply and Retail Market

When suppliers flout the rules, they can make penalty payments to charitable organisations under Ofgem’s innovative redress process. Now, we’re looking at how to improve this process, so that consumers get the most out of this money. Our proposals may see a more diverse number of charities receiving funding.  We want to hear your views.

Kieran Coleman, Senior Manager with Ofgem’s Enforcement and Compliance Team, explains how the process works, and how we plan to change it.

What do we do with penalty money paid by companies?

Over the past year, two of the large energy suppliers made headlines when they paid a total of £44 million for letting customers down. Other cases during the year secured a further £12.1 million. You may be less familiar with where, and to whom, that money then went.

When Ofgem investigates companies, and we find them to be failing customers, they pay a penalty. This money could go to the Treasury as a traditional fine or it can go directly to helping energy consumers.

In the first instance, we always ask companies to make payments back to customers who’ve been directly affected by their wrongdoing.

However, in most cases, companies also need to pay additional penalty money, to make further amends for their wrongdoing. This sends out a signal about how seriously we take the harm they’ve caused.

Ofgem, as part of our statutory duties, tries to make sure that this additional money benefits energy consumers by going to energy charities, trusts and organisations. It’s the only regulator to do this.

As we've developed this initiative over the last five years, hundreds of thousands of consumers have benefitted.

Consumer Redress Graphic

Who does it help?

This money helps energy consumers.

It can pay for anything from making a ‘leaky’ home more energy efficient, to advice which helps struggling consumers keep on top of their bills.

In 2014 and 2015 alone £73.5 million was given to charities and 223,000 energy consumers benefited as a result. This was in addition to compensation that companies paid back to directly affected customers during this period.

Why are we changing this?

The last few years have seen Ofgem conduct more investigations, with the result that companies are paying more out in penalty money.

We want to make the process as robust and transparent as possible, making sure that consumers receive maximum long-term benefit through the millions secured through our work.

What changes are we planning?

The current process is working well, but we want to make it even better and deliver even greater impact for consumers.

Currently, charitable recipients are selected by the company under investigation. Ofgem either accepts or rejects their proposal according to published principles.

Our preferred course of action is that, in future, this whole process is managed by an expert independent third party organisation such as a Donor Advised Fund (DAF) provider.

This could enable an increasing number or variety of energy charities to access this funding, where they can demonstrate it will go to best use.

What do you think?

We want to know what you think this process should look like in future. Find out more about our preferred and other options in our consultation. Let us know what you think either by posting a comment below or emailing Sarah Packwood at redress@ofgem.gov.uk.